Valero Energy Partners LP (NYSE:VLP) (the “Partnership”) today
reported second quarter 2017 net income attributable to partners of
$58 million, or $0.69 per common limited partner unit, and
earnings before interest, income taxes, depreciation, and
amortization (“EBITDA”) attributable to the Partnership of
$80 million. The Partnership reported net cash provided
by operating activities of $66 million and distributable cash flow
of $63 million. The distribution coverage ratio for the
second quarter was 1.5x.
“We operated safely and reliably during the quarter and
generated strong earnings and distribution coverage,” said Joe
Gorder, Chairman and Chief Executive Officer of VLP’s general
partner. “We remain on pace to grow distributions at our
target annual rate of 25 percent for 2017 and at least
20 percent for 2018.”
On July 19, the board of directors of VLP’s general partner
declared a second quarter 2017 cash distribution of $0.455 per
unit. This distribution represents a 6.4 percent increase
from the first quarter of 2017.
Financial Results
Revenues were $110 million for the second
quarter of 2017 compared to $87 million for the second quarter of
2016. Operating expenses were $27 million, general and
administrative expenses were $4 million, and depreciation
expense was $12 million, all of which were in line with the second
quarter of 2016. Revenues were higher in the second quarter
of 2017 compared to the second quarter of 2016 primarily due to
contributions from the Meraux and Three Rivers terminals, which
were acquired subsequent to the second quarter of last year, and
the Red River pipeline segment, which was acquired in January
2017.
Liquidity and Financial
PositionAs of June 30, 2017, the Partnership had $808
million of total liquidity consisting of $88 million in cash
and cash equivalents and $720 million available on its revolving
credit facility. Capital expenditures attributable to the
Partnership in the second quarter of 2017 were $6 million,
including $5 million for expansion and $1 million for
maintenance.
The Partnership continues to target
$49 million of capital expenditures for 2017, which includes
$35 million for expansion capital related to the distillate tank
projects at the St. Charles and Port Arthur terminals and the new
gasoline blending and segregation capability at the Corpus Christi
terminal, all of which will improve Valero Energy Corporation’s
export capabilities. The remaining $14 million is for
maintenance.
Conference CallThe
Partnership’s senior management will host a conference call at 10
a.m. ET today to discuss this earnings release. A live
broadcast of the conference call will be available on the
Partnership’s website at www.valeroenergypartners.com.
About Valero Energy Partners
LP
Valero Energy Partners LP is a master limited
partnership formed by Valero Energy Corporation to own, operate,
develop and acquire crude oil and refined petroleum products
pipelines, terminals, and other transportation and logistics
assets. With headquarters in San Antonio, the Partnership’s assets
include crude oil and refined petroleum products pipeline and
terminal systems in the Gulf Coast and Mid-Continent regions of the
United States that are integral to the operations of 10 of Valero’s
refineries. Please visit www.valeroenergypartners.com for more
information.
Contacts
Investors: John Locke, Vice President – Investor
Relations, 210-345-3077Karen Ngo, Senior Manager – Investor
Relations, 210-345-4574Tom Mahrer, Manager – Investor Relations,
210-345-1953Media: Lillian Riojas, Director – Media and
Communications, 210-345-5002
Safe-Harbor Statement
This release contains forward-looking statements
within the meaning of federal securities laws. These statements
discuss future expectations, contain projections of results of
operations or of financial condition or state other forward-looking
information. You can identify forward-looking statements by words
such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,”
“project,” “could,” “may,” “should,” “would,” “will” or other
similar expressions that convey the uncertainty of future events or
outcomes. These forward-looking statements are not guarantees of
future performance and are subject to risks, uncertainties and
other factors, some of which are beyond the Partnership’s control
and are difficult to predict. These statements are often based upon
various assumptions, many of which are based, in turn, upon further
assumptions, including examination of historical operating trends
made by the management of the Partnership. Although the Partnership
believes that these assumptions were reasonable when made, because
assumptions are inherently subject to significant uncertainties and
contingencies, which are difficult or impossible to predict and are
beyond its control, the Partnership cannot give assurance that it
will achieve or accomplish these expectations, beliefs or
intentions. When considering these forward-looking
statements, you should keep in mind the risk factors and other
cautionary statements contained in the Partnership’s filings with
the SEC, including the Partnership’s annual reports on Form 10-K
and quarterly reports on Form 10-Q available on the Partnership’s
website at www.valeroenergypartners.com. These risks could cause
the Partnership’s actual results to differ materially from those
contained in any forward-looking statement.
Use of Non-GAAP Financial
Information
This earnings release includes the terms
“EBITDA,” “distributable cash flow,” and “coverage ratio.”
These terms are supplemental financial measures that are not
defined under United States generally accepted accounting
principles (GAAP). We reconcile these non-GAAP measures to the most
directly comparable GAAP measures in the tables that accompany this
release. In note (l) to the tables that accompany this
release, we disclose the reasons why we believe our use of the
non-GAAP financial measures in this release provides useful
information.
VALERO ENERGY PARTNERS LP |
EARNINGS RELEASE TABLES |
(thousands of dollars, except per unit
amounts) |
(unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Statement of
income data (a): |
|
|
|
|
|
Operating
revenues – related party (b) |
$ |
110,545 |
|
|
$ |
87,664 |
|
|
$ |
216,361 |
|
|
$ |
166,431 |
|
Costs and
expenses: |
|
|
|
|
|
|
|
Operating
expenses (c) |
27,055 |
|
|
24,086 |
|
|
50,600 |
|
|
48,372 |
|
General
and administrative expenses (d) |
3,863 |
|
|
3,715 |
|
|
7,693 |
|
|
8,080 |
|
Depreciation expense (e) |
12,505 |
|
|
11,821 |
|
|
24,280 |
|
|
23,333 |
|
Total
costs and expenses |
43,423 |
|
|
39,622 |
|
|
82,573 |
|
|
79,785 |
|
Operating
income |
67,122 |
|
|
48,042 |
|
|
133,788 |
|
|
86,646 |
|
Other
income, net |
182 |
|
|
57 |
|
|
246 |
|
|
134 |
|
Interest
and debt expense, net of capitalized interest (f) |
(8,551 |
) |
|
(3,251 |
) |
|
(16,840 |
) |
|
(5,910 |
) |
Income
before income taxes |
58,753 |
|
|
44,848 |
|
|
117,194 |
|
|
80,870 |
|
Income
tax expense |
310 |
|
|
303 |
|
|
614 |
|
|
545 |
|
Net
income |
58,443 |
|
|
44,545 |
|
|
116,580 |
|
|
80,325 |
|
Less: Net loss attributable to Predecessor |
— |
|
|
(4,902 |
) |
|
— |
|
|
(12,420 |
) |
Net
income attributable to partners |
58,443 |
|
|
49,447 |
|
|
116,580 |
|
|
92,745 |
|
Less: General partner’s interest in net income |
11,419 |
|
|
5,213 |
|
|
20,886 |
|
|
8,717 |
|
Limited
partners’ interest in net income |
$ |
47,024 |
|
|
$ |
44,234 |
|
|
$ |
95,694 |
|
|
$ |
84,028 |
|
|
|
|
|
|
|
|
|
Net income per limited partner unit (basic and
diluted): |
|
|
|
|
|
|
|
Common
units |
$ |
0.69 |
|
|
$ |
0.67 |
|
|
$ |
1.41 |
|
|
$ |
1.28 |
|
Subordinated units (g) |
$ |
— |
|
|
$ |
0.67 |
|
|
$ |
— |
|
|
$ |
1.28 |
|
|
|
|
|
|
|
|
|
Weighted-average limited partner units
outstanding(basic and diluted) (in
thousands): |
|
|
|
|
|
|
|
Common
units – public |
22,470 |
|
|
21,501 |
|
|
22,225 |
|
|
21,501 |
|
Common
units – Valero |
45,687 |
|
|
15,747 |
|
|
45,687 |
|
|
15,383 |
|
Subordinated units – Valero (g) |
— |
|
|
28,790 |
|
|
— |
|
|
28,790 |
|
|
See Notes to Earnings Release Tables. |
VALERO ENERGY PARTNERS LP |
EARNINGS RELEASE TABLES |
(thousands of dollars, except per unit and per
barrel amounts) |
(unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Operating
highlights (a): |
|
|
|
|
|
Pipeline
transportation: |
|
|
|
|
|
|
|
Pipeline
transportation revenues (b) |
$ |
24,859 |
|
|
$ |
19,318 |
|
|
$ |
48,034 |
|
|
$ |
39,563 |
|
Pipeline
transportation throughput (BPD) (h) |
1,003,320 |
|
|
850,516 |
|
|
982,873 |
|
|
884,725 |
|
Average
pipeline transportation revenue per barrel (i) (j) |
$ |
0.27 |
|
|
$ |
0.25 |
|
|
$ |
0.27 |
|
|
$ |
0.25 |
|
Terminaling: |
|
|
|
|
|
|
|
Terminaling revenues (b) |
$ |
84,797 |
|
|
$ |
68,211 |
|
|
$ |
167,303 |
|
|
$ |
126,598 |
|
Terminaling throughput (BPD) |
2,852,182 |
|
|
2,146,293 |
|
|
2,793,654 |
|
|
1,998,077 |
|
Average
terminaling revenue per barrel (i) |
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
0.33 |
|
|
$ |
0.35 |
|
Storage
and other revenues (k) |
$ |
889 |
|
|
$ |
135 |
|
|
$ |
1,024 |
|
|
$ |
270 |
|
Total
operating revenues – related party |
$ |
110,545 |
|
|
$ |
87,664 |
|
|
$ |
216,361 |
|
|
$ |
166,431 |
|
Capital
expenditures (a): |
|
|
|
|
|
|
|
Maintenance |
$ |
1,335 |
|
|
$ |
2,866 |
|
|
$ |
3,373 |
|
|
$ |
5,711 |
|
Expansion |
4,888 |
|
|
1,540 |
|
|
11,867 |
|
|
5,895 |
|
Total
capital expenditures |
6,223 |
|
|
4,406 |
|
|
15,240 |
|
|
11,606 |
|
Less:
Capital expenditures attributable to Predecessor |
— |
|
|
1,348 |
|
|
— |
|
|
2,281 |
|
Capital
expenditures attributable to Partnership |
$ |
6,223 |
|
|
$ |
3,058 |
|
|
$ |
15,240 |
|
|
$ |
9,325 |
|
Other financial
information: |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
66,264 |
|
|
$ |
55,172 |
|
|
$ |
140,982 |
|
|
$ |
100,684 |
|
Distributable cash flow (l) |
$ |
62,815 |
|
|
$ |
58,848 |
|
|
$ |
136,477 |
|
|
$ |
109,945 |
|
Distribution declared per unit |
$ |
0.4550 |
|
|
$ |
0.3650 |
|
|
$ |
0.8825 |
|
|
$ |
0.7050 |
|
Distribution declared: |
|
|
|
|
|
|
|
Limited
partner units – public |
$ |
10,231 |
|
|
$ |
7,854 |
|
|
$ |
19,841 |
|
|
$ |
15,169 |
|
Limited
partner units – Valero |
20,788 |
|
|
16,256 |
|
|
40,319 |
|
|
31,399 |
|
General
partner units – Valero |
11,092 |
|
|
4,802 |
|
|
19,994 |
|
|
7,952 |
|
Total
distribution declared |
$ |
42,111 |
|
|
$ |
28,912 |
|
|
$ |
80,154 |
|
|
$ |
54,520 |
|
Distribution coverage ratio: Distributable cash flow divided by
total distribution declared (l) |
1.49x |
|
2.04x |
|
1.70x |
|
2.02x |
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
December 31, |
|
|
|
|
|
2017 |
|
2016 |
Balance sheet
data: |
|
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
|
|
$ |
87,977 |
|
|
$ |
71,491 |
|
Total
assets |
|
|
|
|
1,072,417 |
|
|
979,257 |
|
Debt and capital lease obligations (no current portion) |
|
|
|
895,072 |
|
|
895,355 |
|
Partners’
capital |
|
|
|
|
153,141 |
|
|
55,824 |
|
Working
capital |
|
|
|
|
102,540 |
|
|
84,688 |
|
|
See Notes to Earnings Release Tables. |
VALERO ENERGY PARTNERS LP |
EARNINGS RELEASE TABLES |
RECONCILIATION OF NON-GAAP MEASURES TO MOST
COMPARABLE AMOUNTS |
REPORTED UNDER U.S. GAAP (l) |
(thousands of dollars) |
(unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of net income to EBITDA and distributable cash
flow (a) (l): |
|
|
|
|
|
|
|
Net
income |
$ |
58,443 |
|
|
$ |
44,545 |
|
|
$ |
116,580 |
|
|
$ |
80,325 |
|
Plus: |
|
|
|
|
|
|
|
Depreciation expense |
12,505 |
|
|
11,821 |
|
|
24,280 |
|
|
23,333 |
|
Interest
and debt expense, net of capitalized interest |
8,551 |
|
|
3,251 |
|
|
16,840 |
|
|
5,910 |
|
Income
tax expense |
310 |
|
|
303 |
|
|
614 |
|
|
545 |
|
EBITDA |
79,809 |
|
|
59,920 |
|
|
158,314 |
|
|
110,113 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
(3,703 |
) |
|
— |
|
|
(9,097 |
) |
EBITDA
attributable to Partnership |
79,809 |
|
|
63,623 |
|
|
158,314 |
|
|
119,210 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
(828 |
) |
|
221 |
|
|
(1,725 |
) |
|
235 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
14,136 |
|
|
2,982 |
|
|
16,044 |
|
|
5,484 |
|
Income
taxes paid |
695 |
|
|
496 |
|
|
695 |
|
|
496 |
|
Maintenance capital expenditures attributable to Partnership |
1,335 |
|
|
1,518 |
|
|
3,373 |
|
|
3,520 |
|
Distributable cash flow |
$ |
62,815 |
|
|
$ |
58,848 |
|
|
$ |
136,477 |
|
|
$ |
109,945 |
|
|
See Notes to Earnings Release Tables. |
VALERO ENERGY PARTNERS LP |
EARNINGS RELEASE TABLES |
RECONCILIATION OF NON-GAAP MEASURES TO MOST
COMPARABLE AMOUNTS |
REPORTED UNDER U.S. GAAP (l) |
(thousands of dollars) |
(unaudited) |
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
Reconciliation
of net cash provided by operating activities to EBITDA and
distributable cash flow (a) (l): |
|
|
|
|
|
|
|
Net cash
provided by operating activities |
$ |
66,264 |
|
|
$ |
55,172 |
|
|
$ |
140,982 |
|
|
$ |
100,684 |
|
Plus: |
|
|
|
|
|
|
|
Changes
in current assets and current liabilities |
5,102 |
|
|
1,456 |
|
|
734 |
|
|
3,442 |
|
Changes
in deferred charges and credits and other operating activities,
net |
(334 |
) |
|
(138 |
) |
|
(692 |
) |
|
(249 |
) |
Interest
and debt expense, net of capitalized interest |
8,551 |
|
|
3,251 |
|
|
16,840 |
|
|
5,910 |
|
Current
income tax expense |
226 |
|
|
179 |
|
|
450 |
|
|
326 |
|
EBITDA |
79,809 |
|
|
59,920 |
|
|
158,314 |
|
|
110,113 |
|
Less: EBITDA attributable to Predecessor |
— |
|
|
(3,703 |
) |
|
— |
|
|
(9,097 |
) |
EBITDA
attributable to Partnership |
79,809 |
|
|
63,623 |
|
|
158,314 |
|
|
119,210 |
|
Plus: |
|
|
|
|
|
|
|
Adjustments related to minimum throughput commitments |
(828 |
) |
|
221 |
|
|
(1,725 |
) |
|
235 |
|
Less: |
|
|
|
|
|
|
|
Cash
interest paid |
14,136 |
|
|
2,982 |
|
|
16,044 |
|
|
5,484 |
|
Income
taxes paid |
695 |
|
|
496 |
|
|
695 |
|
|
496 |
|
Maintenance capital expenditures attributable to Partnership |
1,335 |
|
|
1,518 |
|
|
3,373 |
|
|
3,520 |
|
Distributable cash flow |
$ |
62,815 |
|
|
$ |
58,848 |
|
|
$ |
136,477 |
|
|
$ |
109,945 |
|
|
See Notes to Earnings Release Tables. |
|
VALERO ENERGY PARTNERS
LPEARNINGS RELEASE
TABLES(thousands of dollars, except per unit
amounts)(unaudited)
The following tables present our statement of
income for the three and six months ended June 30, 2016. Our
financial results have been adjusted for the acquisition of the
Meraux and Three Rivers Terminal Services Business. See
Note (a) of Notes to Earnings Release Tables for a
discussion of the basis of this presentation.
|
Three Months Ended June 30, 2016 |
|
Valero Energy Partners LP (Previously
Reported) |
|
Meraux and Three Rivers Terminal Services
Business |
|
Valero Energy Partners LP (Currently
Reported) |
Operating revenues –
related party |
$ |
87,664 |
|
|
$ |
— |
|
|
$ |
87,664 |
|
Costs and
expenses: |
|
|
|
|
|
Operating
expenses |
20,520 |
|
|
3,566 |
|
|
24,086 |
|
General
and administrative expenses |
3,578 |
|
|
137 |
|
|
3,715 |
|
Depreciation expense |
10,622 |
|
|
1,199 |
|
|
11,821 |
|
Total
costs and expenses |
34,720 |
|
|
4,902 |
|
|
39,622 |
|
Operating income
(loss) |
52,944 |
|
|
(4,902 |
) |
|
48,042 |
|
Other income, net |
57 |
|
|
— |
|
|
57 |
|
Interest and debt
expense, net of capitalized interest |
(3,251 |
) |
|
— |
|
|
(3,251 |
) |
Income (loss) before
income taxes |
49,750 |
|
|
(4,902 |
) |
|
44,848 |
|
Income tax expense |
303 |
|
|
— |
|
|
303 |
|
Net income (loss) |
49,447 |
|
|
(4,902 |
) |
|
44,545 |
|
Less: Net loss
attributable to Predecessor |
— |
|
|
(4,902 |
) |
|
(4,902 |
) |
Net income attributable
to partners |
$ |
49,447 |
|
|
$ |
— |
|
|
$ |
49,447 |
|
|
Six Months Ended June 30, 2016 |
|
ValeroEnergyPartners
LP(PreviouslyReported) |
|
Meraux
andThree RiversTerminalServicesBusiness |
|
ValeroEnergyPartners
LP(CurrentlyReported) |
Operating revenues –
related party |
$ |
166,431 |
|
|
$ |
— |
|
|
$ |
166,431 |
|
Costs and
expenses: |
|
|
|
|
|
Operating
expenses |
41,397 |
|
|
6,975 |
|
|
48,372 |
|
General
and administrative expenses |
7,806 |
|
|
274 |
|
|
8,080 |
|
Depreciation expense |
21,243 |
|
|
2,090 |
|
|
23,333 |
|
Total
costs and expenses |
70,446 |
|
|
9,339 |
|
|
79,785 |
|
Operating income
(loss) |
95,985 |
|
|
(9,339 |
) |
|
86,646 |
|
Other income, net |
134 |
|
|
— |
|
|
134 |
|
Interest and debt
expense, net of capitalized interest |
(5,910 |
) |
|
— |
|
|
(5,910 |
) |
Income (loss) before
income taxes |
90,209 |
|
|
(9,339 |
) |
|
80,870 |
|
Income tax expense |
545 |
|
|
— |
|
|
545 |
|
Net income (loss) |
89,664 |
|
|
(9,339 |
) |
|
80,325 |
|
Less: Net loss
attributable to Predecessor |
(3,081 |
) |
|
(9,339 |
) |
|
(12,420 |
) |
Net income attributable
to partners |
$ |
92,745 |
|
|
$ |
— |
|
|
$ |
92,745 |
|
|
See Notes to Earnings Release Tables. |
|
VALERO ENERGY PARTNERS
LPNOTES TO EARNINGS RELEASE TABLES
(a) References to “Partnership,” “we,” “us,” or “our”
refer to Valero Energy Partners LP, one or more of its
subsidiaries, or all of them taken as a whole. For businesses that
we acquired from Valero, those terms refer to Valero Energy
Partners LP Predecessor, our Predecessor for accounting purposes
for periods prior to their dates of acquisition. References in
these notes to “Valero” may refer to Valero Energy Corporation, one
or more of its subsidiaries, or all of them taken as a whole, other
than Valero Energy Partners LP, any of its subsidiaries, or
its general partner.
We acquired the following businesses from Valero
in 2016:
- On September 1, 2016, we acquired the Meraux and Three
Rivers Terminal Services Business for total consideration of
$325.0 million.
- On April 1, 2016, we acquired the McKee Terminal Services
Business for total consideration of $240.0 million.
Each acquisition was accounted for as the
transfer of a business between entities under the common control of
Valero. Accordingly, the statement of income data, operating
highlights, and capital expenditures data have been retrospectively
adjusted to include the historical results of operations of the
acquired businesses for periods prior to their dates of
acquisition.
(b) The increase in operating revenues in the three and
six months ended June 30, 2017 compared to the three and six
months ended June 30, 2016 was due primarily to $14.0 million
and $36.6 million, respectively, of incremental revenues generated
by the acquired businesses described in Note (a) and $2.6
million and $4.6 million, respectively, of revenues generated
by our Red River crude system. Prior to being acquired by us, the
businesses described in Note (a) did not charge Valero for
services provided and did not generate revenues. Effective with the
date of each acquisition, we entered into additional schedules to
our commercial agreements with Valero with respect to the services
we provide to Valero using the assets of the acquired businesses.
This resulted in new charges for terminaling services provided by
these assets. In addition, effective January 18, 2017, we
acquired a 40 percent undivided interest in (i) the newly
constructed Hewitt segment of Plains All American L.P.’s Red
River pipeline, (ii) two 150,000 shell barrel capacity tanks
located at Hewitt Station, and (iii) a pipeline connection
from Hewitt Station to Wasson Station (collectively, the Red River
crude system).
(c) The increase in operating expenses in the three months
ended June 30, 2017 compared to the three months ended
June 30, 2016 was due primarily to higher maintenance expense
of $1.7 million at the Houston, St. Charles, Corpus Christi, and
Three Rivers terminals, which was mainly related to inspection
activity. In addition, we incurred total incremental expenses of
$1.0 million related to our Red River crude system and the rail
loading facility at our St. Charles terminal, which was placed in
service in the second quarter of 2017.
The increase in operating expenses in the six
months ended June 30, 2017 compared to the six months ended
June 30, 2016 was due primarily to total incremental expenses
of $1.5 million related to our Red River crude system and the rail
loading facility at our St. Charles terminal.
(d) The increase in general and administrative expenses in
the three months ended June 30, 2017 compared to the three
months ended June 30, 2016 was due primarily to higher public
company costs of $156,000.
The decrease in general and administrative
expenses in the six months ended June 30, 2017 compared to the
six months ended June 30, 2016 was due primarily to
transaction costs of $387,000 in 2016 associated with the
acquisition of businesses from Valero.
(e) The increase in depreciation expense in the three and
six months ended June 30, 2017 compared to the three and six
months ended June 30, 2016 was attributed primarily to
depreciation expense recognized on the assets that compose our Red
River crude system, which was acquired in the first quarter of
2017.
(f) The increase in “interest and debt
expense, net of capitalized interest” in the three and six months
ended June 30, 2017 compared to the three and six months
ended June 30, 2016 was due primarily to the following:
- Incremental borrowings in connection with the 2016
acquisitions. In connection with the acquisitions described in
Note (a), we borrowed $139.0 million and $210.0 million under
our revolving credit agreement. Interest expense on the incremental
borrowings was approximately $1.3 million and $3.3 million in the
three and six months ended June 30, 2017, respectively.
- Incremental interest expense incurred on the senior notes. In
December 2016, we issued $500.0 million of 4.375% senior
notes due December 2026. We used the proceeds of the senior notes
to repay $494.0 million of outstanding borrowings under our
revolving credit facility. The interest rate on these senior notes
is higher than our revolving credit facility, thereby increasing
the effective interest rate in 2017. Incremental interest expense
resulting from these senior notes was approximately
$2.3 million and $4.9 million in the three and six months
ended June 30, 2017, respectively.
- Higher interest rates in 2017. As a result of higher interest
rates experienced in 2017, we incurred additional interest of
$759,000 and $1.3 million in the three and six months ended
June 30, 2017, respectively, on borrowings under our
subordinated loan agreements with Valero.
(g) The requirements under our partnership
agreement for the conversion of all of our outstanding subordinated
units into common units were satisfied upon the payment of our
quarterly cash distribution on August 9, 2016. Therefore,
effective August 10, 2016, all of our subordinated units,
which were owned by Valero, were converted on a one-for-one basis
into common units. The conversion of the subordinated units does
not impact the amount of cash distributions paid or the total
number of outstanding units. The subordinated units were only
allocated earnings generated by us through the conversion date.
(h) Represents the sum of volumes
transported through each separately tariffed pipeline segment
divided by the number of days in the period. The increase in
pipeline transportation throughput in the three and six months
ended June 30, 2017 compared to the three and six months
ended June 30, 2016 was due primarily to volumes at our Red
River crude system, which was acquired in the first quarter of
2017.
(i) Management uses average revenue per
barrel to evaluate performance and compare profitability to other
companies in the industry. There are a variety of ways to calculate
average revenue per barrel; different companies may calculate it in
different ways. We calculate average revenue per barrel as revenue
divided by throughput for the period. Throughput is derived by
multiplying the throughput barrels per day (BPD) by the
number of days in the period. Investors and analysts use this
financial measure to help analyze and compare companies in the
industry on the basis of operating performance.
(j) Average pipeline transportation
revenue per barrel was higher in the three and six months ended
June 30, 2017 compared to the three and six months ended
June 30, 2016 due primarily to higher pipeline transportation
revenue per barrel generated by our Red River crude system, which
was acquired in the first quarter of 2017.
(k) Storage and other revenues was higher
in the three and six months ended June 30, 2017 compared to
the three and six months ended June 30, 2016 due primarily to
revenues generated by the rail loading facility at our St. Charles
terminal, which was placed in service in the second quarter of
2017.
(l) Defined terms are as follows:
- EBITDA is defined as net income less income
tax expense, interest expense, and depreciation expense.
- Distributable cash flow is defined as EBITDA
less (i) EBITDA attributable to Predecessor and cash payments
during the period for interest, income taxes, and maintenance
capital expenditures; plus (ii) adjustments related to minimum
throughput commitments, capital projects prefunded by Valero, and
certain other items.
- Distribution coverage ratio is defined as the
ratio of distributable cash flow to the total distribution
declared.
These terms are not defined under United
States (U.S.) generally accepted accounting
principles (GAAP) and are considered non-GAAP measures.
Management has defined these terms and believes that the
presentation of the associated measures is useful to external users
of our financial statements, such as industry analysts, investors,
lenders, and rating agencies, to:
- describe our expectation of forecasted earnings;
- assess our operating performance as compared to other publicly
traded limited partnerships in the transportation and logistics
industry, without regard to historical cost basis or, in the case
of EBITDA, financing methods;
- assess the ability of our business to generate sufficient cash
to support our decision to make distributions to our
unitholders;
- assess our ability to incur and service debt and fund capital
expenditures; and
- assess the viability of acquisitions and other capital
expenditure projects and the returns on investment of various
investment opportunities.
We believe that the presentation of EBITDA
provides useful information to investors in assessing our financial
condition and results of operations. The U.S. GAAP measures
most directly comparable to EBITDA are net income and net cash
provided by operating activities. EBITDA should not be considered
an alternative to net income or net cash provided by operating
activities presented in accordance with U.S. GAAP. EBITDA has
important limitations as an analytical tool because it excludes
some, but not all, items that affect net income or net cash
provided by operating activities. EBITDA should not be considered
in isolation or as a substitute for analysis of our results as
reported under U.S. GAAP. Additionally, because EBITDA may be
defined differently by other companies in our industry, our
definition of EBITDA may not be comparable to similarly titled
measures of other companies, thereby diminishing its utility.
We use distributable cash flow to measure
whether we have generated from our operations, or “earned,” an
amount of cash sufficient to support the payment of the minimum
quarterly distributions. Our partnership agreement contains the
concept of “operating surplus” to determine whether our operations
are generating sufficient cash to support the distributions that we
are paying, as opposed to returning capital to our partners.
Because operating surplus is a cumulative concept (measured from
our initial public offering (IPO) date and compared to
cumulative distributions from the IPO date), we use distributable
cash flow to approximate operating surplus on a quarterly or
annual, rather than a cumulative, basis. As a result, distributable
cash flow is not necessarily indicative of the actual cash we have
on hand to distribute or that we are required to distribute.
We use the distribution coverage ratio to
reflect the relationship between our distributable cash flow and
the total distribution declared.
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